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Market Today Summit: PLI a great experiment, but need to boost overall biz sentiment in India, say panelists

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Market Today Summit: PLI a great experiment, but need to boost overall biz sentiment in India, say panelists  © Provided by Business Today Market Today Summit: PLI a great experiment, but need to boost overall biz sentiment in India, say panelists

While the government’s Performance Linked Incentive (PLI) scheme can serve as a great experiment, it can neither make India a manufacturing hub nor can it drive up India’s GDP on its own, said panelists at the Business Today’s Market Summit in Mumbai on Friday. 

The scheme, launched first in 2020, is the government’s effort to boost domestic manufacturing across 14 select sectors. Only about a quarter of India’s GDP comes from manufacturing currently.  

The scheme looks at futuristic sectors where India can at least try improving its manufacturing might and isn’t too expensive, said Pranjul Bhandari, Chief Economist, India, HSBC. “But is this enough or will it make India a big manufacturing hub? I don’t think so. A lot more needs to be done. Most importantly, the overall business climate needs to improve in a way that small firms can grow and become large over time,” she said at the session titled ‘The Fiscal Overhang (Eye on Budget 2023-24)’. 

Agreeing that the subsidy bill from the scheme only accounts for 1 per cent of India’s GDP by current GDP standards, Samiran Chakraborty, Chief Economist, India, Citibank, pointed out that even fast growth in that 1 per cent cannot move the overall GDP needle. “We have to think of PLI as an experiment which brings in more investment into non-PLI sectors or we’ll have to expand PLI to many sectors for us to see its impact.” He also added that a lot of foreign companies are considering doing business in India but are fighting a perception battle that it's difficult to do business in India. “If there are companies which can show that India has changed and its possible to do business in India and be profitable, a lot of players waiting in the wings can also join in,” he said.  

On the China+1 opportunity as global supply chains are getting realigned, Bhandari said it would be premature to write off a large economy like China. “But India has a big opportunity in continuing globalisation in services,” she said referring to India’s growth from being a KPO centre to a hub of GCCs where large MNCs want to invest in research & development in various sectors.  

On the issue of India Inc’s capital expenditure not improving to the expected levels, Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI, pointed out that corporate balance sheets have de-leveraged quite a bit over the past two years and credit growth has continued to expand even though there has been some modification in the recent weeks. “So, there is evidence of pick up in private investment activity. But there is a lot of geopolitical conflict. As the fog clears on the global economy, we will see it take off in a meaningful manner,” he said. Chakraborty also agreed that there was no option but to be patient as India Inc has gone through two years of the pandemic. “Now, with geopolitical uncertainties it's difficult for private capex to pick up. We also have to keep in mind that we are now reaching almost all preconditions required for private capex to recover,” he added. 

Yet, the Indian economy is in a sweet spot, the economists said pointing to several parameters such as net NPA, credit growth and UPI transactions. “But we need to take advantage of it. The question is where do we go from here?” said Ghosh. 

While Bhandari took a more conservative view of the India’s GDP growth rate for the next year at 5.5 per cent, the other two agreed on higher rates of 6 per cent and above. Bhandari also urged the government to keep the upcoming budget boring and focus on macro stability rather than big bang efforts so that India can be prepared for a take-off when the global economy improves. 

Also read:  Market Today Summit: It's an under-appreciated skill to get bear market right, says Shankar Sharma

Also read: 'Pick a niche': Zerodha's Nikhil Kamath's advice for millennial and GenZ investors

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